What is the difference between a 401(k) and an IRA?
An example of an AI chatbot conversation about the differences between 401(k) and IRA retirement accounts.
Can you explain the difference between a 401(k) and an IRA?
Sure! A 401(k) is an employer-sponsored retirement plan, while an IRA (Individual Retirement Account) is set up by individuals.
What are the contribution limits for each?
For 2023, the contribution limit for a 401(k) is $22,500, while for an IRA, it's $6,500. There are catch-up contributions for those over 50.
Are there tax benefits for both?
Yes, both accounts offer tax advantages. Contributions to a 401(k) are often pre-tax, reducing your taxable income, while traditional IRA contributions may also be tax-deductible.
Can I withdraw money from them before retirement?
Yes, but there are penalties. With a 401(k), you may face a 10% penalty if you withdraw before age 59½, and IRAs have similar rules, though there are exceptions.
Which one should I choose for retirement savings?
It depends on your situation. If your employer offers a 401(k) with matching contributions, it's often beneficial to take advantage of that first.
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